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Need help choosing fund

Posted: Sun Oct 19, 2008 8:56 am
by debv1947
Hello –
I learned of you from an article in this morning’s Philadelphia Inquirer and I hope you can help me. I will be as brief as possible but must give you some information.

I am 61 years old. I came late to the work force and am in a low-paying field. For years I was not even able to contribute to a 401K plan but about ten years ago I started to. At this point, I would feel better having my money in a mattress. In the last month, my contributions along with my employer’s match for about four years have been wiped out.

My intention is to work until I am 75-80 years old (this is very possible due to excellent health and good genes). I intend to wait until I am 70 to take Social Security and to then save all of my SS payments as I continue to work.

I am not looking to become rich. I live modestly and just want to build a nest egg to supplement my social security when I do retire. I do not seem to be typical of those who come to your site but I do need help.

I recently got promoted at work and will have extra income which I want to invest with Vanguard. My plan at the moment is to cash in what is left of my 401K (only about 12 or 13K) and use that to start an investment with Vanguard. I will then be able, between my raise and not contributing to a 401K, be able to put way 500-600 per month.

I actually spoke to a Vanguard representative yesterday and he suggested either the Intermediate Treasury Fund (0035) or the GNMA Fund (0036) as low risk investments.

Again, I am not looking to become wealthy –even a very modest return is fine with me. I just want to have enough put away to take a few hundred dollars per month to maintain my simple lifestyle.

Thank you for any advice you can offer.

Thank you very much Laura and Sam - I am posting below the answers to your questions following the format under "Posting" . Laura, your response was most helpful. Of the choices listed for my 401K - is there any that would be a good place to go for now? There does not seem to be a money market fund as a choice.

I understand what you said about withdrawing. My thought is whatever I am able to put away per month for the next 10 to 15 years plus putting away five (or maybe more) years of Social Security payments should give me enough.

I also understand that the employer match is free money but $600 aftertax dollars in a safer investment seems wiser to me than continuing in the 401K. If I do stay in the 401K, I would have about $400 per month to invest in a Vanguard fund.

Again, Laura and Sam, thank you both so much for helping me.

Deborah

Emergency Funds – None

Debt – Credit Card – About $4000 – paying down every month – 0% APR
Car Loan – just got – about $14000 at 2.9% for five years
School Loan – About $40,000 – in partial forbearance – pay $125/month – rate fluctuates.

Tax Filing Status – Single

Tax Rate- By calculating my gross minus 401K contribution it seems to be about 15% PA State Tax is 2.5%

Age 61

Desired Asset Allocation – This is what I am asking

Current Portfolio – Non-existent Just 401K I contribute 5% of gross pay and employer match is 50% (up to 5% of pay). My current 401K investment is the FID Freedom 2020 Fund . This is the description from Fidelity’s website:

What it is
An asset allocation mutual fund.

Goal
Seeks high total return until its target retirement date. Thereafter, the fund's objective will be to seek high current income and, as a secondary objective, capital appreciation.

What it invests in
Primarily invests approximately 53% in domestic equity funds, 13% in international equity funds, 26% in investment grade fixed income funds, 7% in high yield fixed income funds, and 1% in Fidelity short-term mutual funds. The mix of underlying Fidelity mutual funds will gradually become more conservative over time. Share price and return will vary.

These are all of the choices I have for the 401 K – I am not sure what “expense ratio” means.
Sort by: Investment Name
Asset Class
Non-Load Adjusted Returns
1 Yr
3 Yr
5 Yr
10 Yr
LOF

1
Fidelity Balanced Fund
Blended Investments -19.56% 0.78% 6.05% 6.58% 9.22%
2
Fidelity Contrafund
Stock Investments -19.04% 3.07% 9.46% 7.47% 12.57%
3
Fidelity Convertible Securities Fund
Blended Investments -28.27% -0.83% 4.42% 8.49% 10.87%
4
Fidelity Diversified International Fund
Stock Investments -28.79% 2.25% 10.43% 9.73% 9.86%
5
Fidelity Freedom 2000 Fund
Blended Investments -6.43% 2.23% 3.37% 4.53% 5.72%
6
Fidelity Freedom 2005 Fund
Blended Investments -13.19% 1.48% -- -- 3.63%
7
Fidelity Freedom 2010 Fund
Blended Investments -13.60% 1.46% 4.23% 5.12% 6.52%
8
Fidelity Freedom 2015 Fund
Blended Investments -14.97% 1.55% -- -- 4.27%
9
Fidelity Freedom 2020 Fund
Blended Investments -18.08% 1.15% 5.27% 5.17% 6.62%
10
Fidelity Freedom 2025 Fund
Blended Investments -19.01% 0.97% -- -- 4.45%

11
Fidelity Freedom 2030 Fund
Blended Investments -21.47% 0.65% 5.53% 4.84% 6.29%
12
Fidelity Freedom 2035 Fund
Blended Investments -22.01% 0.51% -- -- 4.53%
13
Fidelity Freedom 2040 Fund
Blended Investments -22.58% 0.46% 5.79% -- -0.58%
14
Fidelity Freedom 2045 Fund
Blended Investments -23.06% -- -- -- -2.73%
15
Fidelity Freedom 2050 Fund
Blended Investments -24.10% -- -- -- -3.17%
16
Fidelity Freedom Income Fund
Blended Investments -5.21% 2.29% 3.13% 4.06% 4.94%
17
Fidelity Growth & Income Portfolio
Stock Investments -34.59% -7.79% -1.02% 0.02% 10.26%
18
Fidelity Large Cap Growth Fund
Stock Investments -21.52% -3.83% 3.90% -- -0.11%
19
Fidelity Large Cap Value Fund
Stock Investments -24.61% -1.16% 7.27% -- 4.33%
20
Fidelity Mid Cap Growth Fund
Stock Investments -27.69% -5.79% 3.89

21
Fidelity Mid Cap Value Fund
Stock Investments -24.27% -1.89% 7.98% -- 6.83%
22
Managed Income Portfolio
7 day yield 3.29% Bond Investments 4.14% 4.13% 4.08% 4.78% 5.59%
23
Morgan Stanley Inst. Fund Trust Core Plus Fixed Income Portfolio Class P Shares
Bond Investments -13.23% -1.97% 0.58% 3.35% 4.09%
24
Morgan Stanley Institutional Fund, Inc. Small Company Growth Portfolio Class P Shares
Stock Investments -28.32% -3.27% 5.43% 9.73% 9.24%
25
Neuberger Berman Genesis Trust CL
Stock Investments -4.40% 5.87% 13.26% 13.83% 13.76%
26
Neuberger Berman Partners Fnd Trust CL
Stock Investments -27.76% -3.44% 7.14% 4.42% 7.82%
27
Northern Small Cap Value
Stock Investments -8.18% 2.93% 10.37% 10.55% 10.37%
28
Spartan Total Market Index Fund - Investor Class
Stock Investments -21.19% 0.56% 5.93% 3.93% 4.05%

Posted: Sun Oct 19, 2008 9:10 am
by SamLJ
Welcome to the forum debv1947!

First offs, your questions could best be answered by posting according to the guidelines here:
http://www.bogleheads.org/forum/viewtopic.php?t=6212

Make sure you post the fund options available in your 401k, your employer match, all other investments you have, and the total amount of new capital available for investing.

It is likely that you had a very large percentage of your investments in equities for your age. It would be advisable to think about how much risk you are willing to take in the future (this is normally thought about in terms of the percentage of your investments that you want to be allocated to equities). A typical allocation is your age in bonds (as a percentage) with the rest in equities. This would put you in a 39/61 (equities/bonds) allocation.

Anyway, get back to us with some more information and we'll do our best to help.

Sam

Investment plan

Posted: Sun Oct 19, 2008 9:10 am
by Laura
debv1947,

Welcome to the forum. We can all sympathize with your recent losses since we have all been through the same thing. Pulling money out of your 401k and putting it in Vanguard probably isn't going to solve your problem because almost everything is down right now. Does your employer match any of your 401k contributions? If yes that is free money and you want to keep receiving that money.

The method that we use on this forum is to develop an investment plan that includes an asset allocation (split between stocks and bonds) that balances your NEED to take risk with your ABILITY to withstand the ups and downs of the market. You must realize that down market are normal and they will happen again in the future.

You must also realize that one of the greatest long term risks you face is inflation. If your investments are not growing faster than inflation you are actually losing money every year even if you think you are not. From the sounds of your post it appears that you may be too aggressively invested and have passed your ABILITY to withstand the market ups and downs.

To build an investment plan you need to:

1. settle on your desired asset allocation
2. look at all of your holdings together as one unified portfolio. This includes any accounts besides your 401k like spouse accounts, taxable accounts, or IRAS.
3. Select funds that match your desired asset allocation.

Before making any changes I encourage you to do a little reading. None of this is difficult but take a look at Investment Planning and Asking Portfolio Questions.

Please post the information requested in asking portfolio questions. If you only have the one 401k it shouldn't be that difficult. Make sure and post all the fund options in your 401k along with expense ratio.

Finally, you may need more money than you think. You mention taking a few hundred dollars each month. You can only withdraw 4% of your portfolio without facing a large risk of running out of money. This means that to withdraw $400 per month equal to $4800 per year you need to have $120,000 in your portfolio.

By investing in your 401k or in an IRA you can reduce your tax liability and have more to invest. Don't move forward on the plan to pull out of the 401k until you have a plan. It is probably the worst mistake you can make.

While building your plan look at the fund options in your 401k. Do you have a money market fund? If yes, shift all of your money into that money market fund but leave it inside the 401k. That will keep it safe temporarily and allow you time to make a plan.

I hope this helps.

Laura

Posted: Sun Oct 19, 2008 9:39 am
by JW-Retired
debv1947 wrote: My intention is to work until I am 75-80 years old (this is very possible due to excellent health and good genes). I intend to wait until I am 70 to take Social Security and to then save all of my SS payments as I continue to work.
That's a very good plan. But I think taking money out of the 401K is probably not a good idea. You will have to pay all the taxes due on it. If there is an employer match you won't get that any more. What are the funds available in your 401K and what are their expense charges?

If you can list these as Laura and others ask, I'm sure the experts here can help you decide what to do.
JW

Posted: Sun Oct 19, 2008 10:12 am
by retiredjg
debv1947, Welcome to the forum!

I have a question. How can you just pull your money out of your 401k? I was under the impression you had to leave it until retirement. I assume there is an age exception, but I would not have thought it was as low as 61 years.

I agree with the others that you may have been a little over-aggressive in your 401k choices if your losses are causing you to want to sell. On the other hand, maybe you just need more education to make you comfortable with sitting this out. Or maybe you just need support from others going through the same thing? Either way, you've come to the right place.

I hope you'll follow the advice above and post your information in the format which is found in the link "Asking Portfolio Questions". There may be several perfectly good options that don't involve moving everything at the present time. On the other hand, if you really should move, Laura and probably others will give you good advice on how to it.

Consider if you can stick tight for the few days it will take to post your info and get advice on what to do. I'm not trying to say things are all rosy, but you may find the answer is not as drastic as your current plan. Good luck! jg

Posted: Sun Oct 19, 2008 10:21 am
by debv1947
Thank you to all who answered - I appreciate the encouragement. According to the Fidelity website - I am able to withdraw the entire 401K balance - I do have to pay the taxes but there is not penaltyif you are older than 59 1/2. I am reposting my response as I think I put it in the wrong place by adding it to the original question.


Thank you very much Laura and Sam - I am posting below the answers to your questions following the format under "Posting" . Laura, your response was most helpful. Of the choices listed for my 401K - is there any that would be a good place to go for now? There does not seem to be a money market fund as a choice.

I understand what you said about withdrawing. My thought is whatever I am able to put away per month for the next 10 to 15 years plus putting away five (or maybe more) years of Social Security payments should give me enough.

I also understand that the employer match is free money but $600 aftertax dollars in a safer investment seems wiser to me than continuing in the 401K. If I do stay in the 401K, I would have about $400 per month to invest in a Vanguard fund.

Again, Laura and Sam, thank you both so much for helping me.

Deborah

Emergency Funds – None

Debt – Credit Card – About $4000 – paying down every month – 0% APR
Car Loan – just got – about $14000 at 2.9% for five years
School Loan – About $40,000 – in partial forbearance – pay $125/month – rate fluctuates.

Tax Filing Status – Single

Tax Rate- By calculating my gross minus 401K contribution it seems to be about 15% PA State Tax is 2.5%

Age 61

Desired Asset Allocation – This is what I am asking

Current Portfolio – Non-existent Just 401K I contribute 5% of gross pay and employer match is 50% (up to 5% of pay). My current 401K investment is the FID Freedom 2020 Fund . This is the description from Fidelity’s website:

What it is
An asset allocation mutual fund.

Goal
Seeks high total return until its target retirement date. Thereafter, the fund's objective will be to seek high current income and, as a secondary objective, capital appreciation.

What it invests in
Primarily invests approximately 53% in domestic equity funds, 13% in international equity funds, 26% in investment grade fixed income funds, 7% in high yield fixed income funds, and 1% in Fidelity short-term mutual funds. The mix of underlying Fidelity mutual funds will gradually become more conservative over time. Share price and return will vary.

These are all of the choices I have for the 401 K – I am not sure what “expense ratio” means.
Sort by: Investment Name
Asset Class
Non-Load Adjusted Returns
1 Yr
3 Yr
5 Yr
10 Yr
LOF

1
Fidelity Balanced Fund
Blended Investments -19.56% 0.78% 6.05% 6.58% 9.22%
2
Fidelity Contrafund
Stock Investments -19.04% 3.07% 9.46% 7.47% 12.57%
3
Fidelity Convertible Securities Fund
Blended Investments -28.27% -0.83% 4.42% 8.49% 10.87%
4
Fidelity Diversified International Fund
Stock Investments -28.79% 2.25% 10.43% 9.73% 9.86%
5
Fidelity Freedom 2000 Fund
Blended Investments -6.43% 2.23% 3.37% 4.53% 5.72%
6
Fidelity Freedom 2005 Fund
Blended Investments -13.19% 1.48% -- -- 3.63%
7
Fidelity Freedom 2010 Fund
Blended Investments -13.60% 1.46% 4.23% 5.12% 6.52%
8
Fidelity Freedom 2015 Fund
Blended Investments -14.97% 1.55% -- -- 4.27%
9
Fidelity Freedom 2020 Fund
Blended Investments -18.08% 1.15% 5.27% 5.17% 6.62%
10
Fidelity Freedom 2025 Fund
Blended Investments -19.01% 0.97% -- -- 4.45%

11
Fidelity Freedom 2030 Fund
Blended Investments -21.47% 0.65% 5.53% 4.84% 6.29%
12
Fidelity Freedom 2035 Fund
Blended Investments -22.01% 0.51% -- -- 4.53%
13
Fidelity Freedom 2040 Fund
Blended Investments -22.58% 0.46% 5.79% -- -0.58%
14
Fidelity Freedom 2045 Fund
Blended Investments -23.06% -- -- -- -2.73%
15
Fidelity Freedom 2050 Fund
Blended Investments -24.10% -- -- -- -3.17%
16
Fidelity Freedom Income Fund
Blended Investments -5.21% 2.29% 3.13% 4.06% 4.94%
17
Fidelity Growth & Income Portfolio
Stock Investments -34.59% -7.79% -1.02% 0.02% 10.26%
18
Fidelity Large Cap Growth Fund
Stock Investments -21.52% -3.83% 3.90% -- -0.11%
19
Fidelity Large Cap Value Fund
Stock Investments -24.61% -1.16% 7.27% -- 4.33%
20
Fidelity Mid Cap Growth Fund
Stock Investments -27.69% -5.79% 3.89

21
Fidelity Mid Cap Value Fund
Stock Investments -24.27% -1.89% 7.98% -- 6.83%
22
Managed Income Portfolio
7 day yield 3.29% Bond Investments 4.14% 4.13% 4.08% 4.78% 5.59%
23
Morgan Stanley Inst. Fund Trust Core Plus Fixed Income Portfolio Class P Shares
Bond Investments -13.23% -1.97% 0.58% 3.35% 4.09%
24
Morgan Stanley Institutional Fund, Inc. Small Company Growth Portfolio Class P Shares
Stock Investments -28.32% -3.27% 5.43% 9.73% 9.24%
25
Neuberger Berman Genesis Trust CL
Stock Investments -4.40% 5.87% 13.26% 13.83% 13.76%
26
Neuberger Berman Partners Fnd Trust CL
Stock Investments -27.76% -3.44% 7.14% 4.42% 7.82%
27
Northern Small Cap Value
Stock Investments -8.18% 2.93% 10.37% 10.55% 10.37%
28
Spartan Total Market Index Fund - Investor Class
Stock Investments -21.19% 0.56% 5.93% 3.93% 4.05%

Last edited by debv1947 on Sun Oct 19, 2008 11:14 am; edited 1 time in total

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Wrong Asset Allocation

Posted: Sun Oct 19, 2008 10:47 am
by Laura
debv1947,

The problem isn't with your 401k it is with the fund you selected. Mr. Bogle, the founder of Vanguard, recommends holding your age in bonds. This means you should have about 40% of your portfolio in stocks and 60% in bonds. The Fidelity Freedom 2020 fund has 66% in stocks and 34% in bonds. This is too aggressive for someone your age and also obviously too aggressive for your stomach.

Remember that you are still accumulating so that the drop in the market is actually a good thing. This means that you are buying a lot more shares with each dollar than you would have just a few months ago. It may not seem like good news now but the market will go back up at some point and your portfolio will zoom with it because you are buying low.

The Fidelity Freedom 2000 fund has about 30% in stock and 70% in bonds. The Fidelity Freedom Income Fund has about 20% in stock and 80% in bonds. In your situation I would switch to the Fidelity Freedom 2000 fund. This should allow for growth but at the same time protect your investment. This portfolio can go down but would drop by far less than your current investment.

If you absolutely cannot tolerate even that level of movement then you might want to look at Managed Income Portfolio
7 day yield 3.29% Bond Investments 4.14% 4.13% 4.08% 4.78% 5.59%
23 and switch to this fund for all of your current holdings and your new contributions.

For any extra money that comes from your pay raise I suggest you open an IRA at Vanguard. You can use the Target Retirement 2005 with 42% stocks and 58% bonds. You do need to have $3k to open this fund so you can temporarily open an IRA at your local bank and put the extra money in your bank IRA savings account until you have $3k have Vanguard roll over the bank money directly to Vanguard. Once you have the IRA open with the minimum you can add money in $100 increments.

401k
Fidelity Freedom 2000

Vanguard
Target Retirement 2005

If this still seems too aggressive let us know but you really need to understand that the market will move but you face a huge risk from inflation if you don't get 20-30% of equities into your holdings for the long term.

Laura

401k

Posted: Sun Oct 19, 2008 10:51 am
by Laura
debv,

If you are allowed to withdraw from the 401k with no penalty you can move that money into an IRA at Vanguard and use the Target Retirement fund I suggested in my last post. This would allow you to open the account with more than $3k immediately then you can begin adding to it with any extra money. However, you should continue contributing to the 401k because you do not want to pass up that matching money. It will make a huge difference to you in the end. Perhaps you can set up a plan to contribute to the 401k then to move the money into the IRA every six months. Make sure to check with your plan regulations on how to do this without losing the matching funds.

Laura

Posted: Sun Oct 19, 2008 11:21 am
by debv1947
Laura -

Thank you SO much for this help. This is really clearing things up for me. I am going to switch to the Managed Income Portfolio for the moment and then possibly later to the Freedom 2000.

I will probably withdraw some money from the 401 to start an account at Vanguard and then use my raise money to add to that. I will look into a regular movement of funds to see if that is feasible.

One final question, I understand what you are saying about the Target Retirement 2005 and I did take a look at it. However, when I spoke to the Vanguard representative yesterday, he suggested either the Intermediate Treasury Fund (0035) or the GNMA Fund (0036) as low risk investments that offer some return. Do you think that the Target 2005 is a better choice?

Again, I can't thank you enough for your help. I feel much better about the whole situation.

Deborah

Terminology

Posted: Sun Oct 19, 2008 11:30 am
by Laura
Deborah,

Do not "withdraw" money from the 401k. That would probably be a taxable transaction. What you want to do is rollover money from your 401k directly into an IRA at Vanguard. Doing this wrong will cost you money.

I believe strongly that you need some equities in both your 401k and your new IRA account. Both funds I recommended have very low percentages. Remember that your safe investment earning 3% is actually losing money for you every day because of inflation. The other holdings are losing money as well but they have the chance to grow faster than the rate of inflation. You need this for your long term financial success. Just as a comparison many pension managers use 60/40 as an asset allocation. I am recommending the reverse of that with your 40/60 or even 20/80 asset allocation.

The Vanguard representative is right in one sense that the intermediate treasury is a good fund. You really need to get some equity in here and that fund doesn't have any. It is only treasury bonds. Remember, you are buying when things are on sale. Picture your pantry at home. You eat a lot of spaghetti and stocked up at $3 per package. In the grocery store you now find it on sale for $1 per package. You buy a bunch more usually. Do you go home and look at the packages sitting on your shelf and see a loss of $2 per package? Probably not. Stocks are the same. You haven't lost anything until you actually sell. You still have the same number of shares you had a few months ago. As soon as you make any of these changes then you have officially lost by buying high and selling low. That is a long term formula for failure. You need to buy low and sell high. You have that chance now with all new contributions.

That said, you obviously misjudged your risk tolerance and need to set it at the right level for the long term. If you miss your target again and go too conservative then you will be making a shift again in just a few months or years when the market takes off again. Past performance tells you nothing about future performance and studies have shown that your asset allocation (split between stocks and bonds) is responsible for more than 90% of your return. Finally, remember that risk and return are related. Low risk means low returns and high risk means the possibility of high returns. (Of course high risk also means the chance of big losses.) You need to balance these out to find numbers that work for you.

Laura

Posted: Sun Oct 19, 2008 11:45 am
by muddlehead
you will be saving approx 6k per year for at least 15 years. if it was me, i'd play it 100% safe, and only invest in cd's. at age 61, watching every penny in your situation, even though i think/hope vtsmx will be higher in 15 yrs, i don't think you can take that chance.

Posted: Sun Oct 19, 2008 12:29 pm
by debv1947
Thank you again. I will definitely give a great deal of thought to your advice. I will certainly do the rollover rather than the withdrawal. I am sticking with the most conservative investment for my 401K at the moment. It is easy enough to change it in a few months if I want to. I will wait a little while before opening an account at Vanguard and then go with the investment that makes the most sense at the time. In fact, I'll probably post another question when I'm ready to go. Again, Laura, you have really helped me today and I appreciate it.

Deborah

Posted: Sun Oct 19, 2008 5:42 pm
by SamLJ
Hi again Deborah,

Could you post the employer match % please. If you have one you absolutely need to keep contributing to your 401k. As others have said, you have options in your 401k that are not bad and do not have terrible expenses associated with them.

You will get the best advice if you can post:
i) employer match %
ii) how many dollars the employer match corresponds to
iii) if you contribute enough to get the maximum match from your employer, how much money you have left-over to invest
iv) approximately how much money you have invested
v) how much income you see yourself needing in retirement

I think your main priority is to establish an emergency fund. I see this as absolutely essential and will help you sleep no end knowing that you have a safety net of 6-12 months in case things take a turn for the worse.

I know it seems personal to ask how much you have saved for retirement, but the more info you give the more we can help.

I would be leaning more towards a 50/50 equities/bonds ratio if you are planning to work and invest for another 15 years or so, which is slightly more aggressive than others have suggested, but this is an issue that you absolutely need to think about, settle on and be happy with once you decide.

Sam

Posted: Sun Oct 19, 2008 6:19 pm
by debv1947
Thank you Sam for your thoughtful advice. My employer matches 50% up to 5% of gross pay so I contribute 5% of my gross pay. Right now - my contribution is $125 every two weeks and my employer's os $62.50 every two weeks. As I said in my original post, I work in a very low-paying field.

With my raise and another that is coming at the end of December, I will have about $400 dollars per month to invest. All I have invested is my 401K of about (after recent events) 20K. As I said, I came into the workforce late and did not start my 401K right away due to low salary.

As for an emergency fund, if you are lucky enough to have enough to establish 6-12 months of savings - good for you. My 401K would be my safety net if anything terrible happened. I live simply but I also do not make a lot of money.

I have already answered how much (or little) I have saved. I do the best I can with my limited resources. As I said in my original post - my plan is to wait to collect Social Security until age 70 and then put all of it away for however many more years I work after that.

This experience with my 401K losses has taught me that I am not comfortable with a higher risk and would rather have a lower return and a lower risk.

Again, thank you for taking the time to respond to my posting.

Deborah

Posted: Sun Oct 19, 2008 6:54 pm
by JW-Retired
debv,
I would urge you not to stop contributing at least 5% to your 401K so you can continue to get the full employer match. Fidelity is actually a pretty low cost fund company. The expense ratio for the Fidelity Freedom 2000 Fund someone suggested to you is only 0.51%. That is a bit higher than Vanguard charges but the difference is a trivial cost compared to giving up your employer matching contribution. You are not making any sense about this. If you absolutely positively can't stand any risk of stock losses then put it all in the Fidelity Income Fund. If you had your money in Vanguard equity funds you would have had very similar losses.

You will be guaranteed to wind up with less money if you quit your 401K and save on your own in Vanguard. That would be a costly mistake.
JW

Posted: Sun Oct 19, 2008 7:42 pm
by JW-Retired
JW Nearly Retired wrote: If you had your money in Vanguard equity funds you would have had very similar losses.
Deb,
I have to take this back. I just checked and the FID 2020 Freedom Fund lost you about 32% since the first of the year. In the similar Vanguard Target Retirement 2020 fund you would have lost only 23%. I'm shocked at the difference. The Fido fund is 66/34 stocks to bonds and the Vanguard fund actually has more stocks (70/30). The only big difference I can see is Fido has a lot more low grade bonds in their bond portion. Anyone else have an explanation? Did I make some mistake?

Anyway, before you bolt Fidelity I checked the FID 2000 Freedom Fund and you would have only been down 9% in that.

Stay in your 401K.
JW

Posted: Sun Oct 19, 2008 7:55 pm
by SamLJ
Hi Deborah,

Regarding the amount available to invest you say that you are currently putting in about $250 per month with a match of $125, and you also state that with your new raise and if you stop contributing to the 401k you would have $600 after tax to invest, so my main query is:

With your new raise, and making the 5% contribution to the 401k to get the employer match, how much extra would you have available to invest (if anything), and how much would the 5% contribution be if there is some more money to invest? I am asking this to see if a Roth IRA might be a good option for you.

Absolutely take the employer match - this is the best financial decision you can take.

I would be hesitant to go below 40% in equities given your longer term plan to work for a significant period of time.

I hope this helps,
Sam

Looking for a Fund

Posted: Sun Oct 19, 2008 10:41 pm
by giacolet
Hi Debv1947,

I'm 65, working full-time and collect social security. I, too, have a modest employment income.

I am very pleased to see that we don't have an aristocratic bias on this forum and that you have received several well-condidered responses.

I concur with the general guidance suggestions that you stay with the 401K to receive the employer match.

The Vanguard Target Retirement Income Fund is down only -4.23 this year in contrast to the Fidelity Freedom Income Fund down -5.21.

These compare with the losses in your Fidelity Freedom 2020 Fund of minus 18.08%.

The Vanguard Income Fund is 30% stocks, 65% bonds of which 20% is Treasury Investment Securities (Tips), and 5.0% Short Term Investments.

Get out of that Fidelity Freedom 2020 Fund.

If you continue with the 401k you can direct some portion of your future contributions to equities to increase your stock allocation.